Comerica Economic Weekly

It was a light week for data. The most important U.S. data points were the November trade gap and November job openings (both series have significant lags), unemployment insurance claims for the first week of January and the NFIB Small Business Optimism Index for December. The U.S. international trade gap widened more than expected in November to $48.7 billion, pushed out by an increase in cell phone and pharmaceutical imports. The total value of imports surged by $8.4 billion while exports increased by $1.7 billion. The increase in exports was driven by automotive vehicles and parts. After adjusting for inflation, the real trade gap in goods widened in November, suggesting that trade will likely be a small drag on real GDP for the fourth quarter of 2012. The broader story behind the monthly trade data is that international trade is not now an accelerator for the U.S. economy. Since November 2011 gross imports and exports are little improved. This underscores the importance of domestic consumption and investment in powering the U.S. economy in 2013. Domestic consumption, in turn is driven by income growth, credit availability and to a smaller extent, changes in the personal saving rate. Just over half of U.S. personal income comes from wages and salaries, so job growth is a key factor. Another timely factor to consider is the impact of taxes. The recent increase in federal taxes to the majority of U.S. households will reduce real disposable personal income (income after inflation and taxes) in the range of three percent (annualized) in the current first quarter of 2013. This potential drag to spending will likely be softened by an increased use of credit and a dip in the personal saving rate. Fortunately, households in the U.S. have deleveraged significantly over the past few years and credit availability to households is improving. Long story short…with international trade idling, U.S. growth in early 2013 will come from domestic consumption and investment. Consumption will be hurt by higher taxes, but a re-leveraging consumer will find a way to keep spending. Initial claims for unemployment insurance for the week ending January 5 increased by 4,000 to hit 371,000. Initial claims appear to be range bound around 370,000, not showing significant improvement through most of 2012. The Job Opening and Labor Turnover Survey (JOLTS) for November shows unchanged hiring and separation rates from October. The job openings rate (openings per employee) essentially flat lined in 2012 at 2.7 percent, after improving through 2010 and 2011. The unemployment rate also flat lined at the end of 2012 at 7.8 percent. So we can say that labor market conditions did improve a bit as payroll employment picked up in the fall following a weak summer, but there was still not strong momentum in hiring at the end of last year. The National Federation of Independent Businesses’ Small Business Optimism Index improved slightly in December after a big drop in November, coincident with the flat hiring rate and lackluster trade data.  Business confidence remains impaired at a recessionary level.

Beginning this week we will no longer publish estimates and ranges for economic indicators from Steve Wood at Insight Economics as he has retired. We will use Bloomberg as the source of our consensus estimates going forward.

Click here for a PDF version of the complete Comerica Economic Weekly, including forecasts for next week’s data releases and an updated economic calendar: CMAEconWeekly011113.

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